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that a lender is only allowed to let you borrow up to 30% gross of work salaries at their determined interest rate. Ie you may have a 3.99% on the loan but the assessment may be on 6% and they may allow you up to 80% of the IP income.
Its a bit more complex than this but very rough this is the case. Lender calculations are hidden behind the scenes though. They will also use living expenses worked out on the higher of what you are spending or one of the spending indexes.
In most cases borrowing capacity is only 6 to 8 times the borrowers pretax annual income. If you earn $100,000 pa you would be limited to $700,000 – very rough
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
If you don’t qualify to borrow then you won’t qualify to guarantee…
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Don’t believe everything you hear is the first thing.
Second thing is that lending tightened up significantly in 2009 when the NCCP Act came in and again in around 2017 when APRA started trying to cool the market down by curbing lenders. So ask the people when they acquirered their properties.
If you have already tapped out it might be too late, but if you had companies borrowing you could have extended further by not being the borrower but the guarantor.
And some non-bank lenders will have easier servicing so has your broker tried the firstmacs, resimacs, pepper and liberty?
And it is not how many you own that counts. You could sell your main residence and buy 16 more cheap properties potentially. But this may not be a good move.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
they will ask the guarantor to repay the loan first though.
what do you mean? The borrower is first asked to repay the loan with the guarantor only liable if the borrower doesn’t.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
There are low docs still out there, but you will need to declare an income still – and pass serviceability. If the income is too low you will still not service. You will also have to supply limited evidence of the income which might be bank statements, bas or accountant letter or a combo
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Yes you would be borrowing $500k in that instance.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Won’t that drastically increase the monthly repayments though?
Yes
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
That means you are borrowing the deposit
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
There are hundreds of ways to improve serviceability. You should speak to a broker aboutt specific things that might work for you.
One simple one is to go PI on all loans and extend back to 30 year terms.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
the less you borrow the easier it will be, but it depends on where you are getting the deposit money from
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
do the banks consider my annual income as $524k
Not really. They will have a complex calculator which takes into account a percentage of your salary income and generally 70% to 80% of the rent.
Would they also count any depreciation claimed on the property and any tax claims on the tax deductible investment loan towards my annual salary?
These days I don’t think any will take into account depreciation, but some will take into account interest being deductible.
If so, it would be possible to keep purchasing property year after year for a similar price.
You coudn’t keep borrowing to buy similar properties because you would soon hit your serviceability limit.. But there are ways to extend it
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
It is really irrelevant whether a property is cash flow positive or negative for finance. Every bit of income helps, but the risk is still the same for the lender and serviceability must be passed.
For a property not to affect serviceability, in theory, it would need to have about a 11% yield. But most lenders will cap yields for serviceability at about 6%.
That means if you have a $100,000 property returning $12,000 pa in rent, for servicing they will use $6,000 max – for loans secured by this property and secured by other property.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
a) When you say to carefully select the director of the trust, should it be the personal with the highest annual income? What are the other important factors to consider?
All the other legal issues. Being a director is potentially dangerous and burdensome, but not being a director means loss of control.
b) What do you mean when you say ‘avoid using certain lenders’?
Each lender has a different policy to other lenders so some will be good for what you are after others will not be good.
c) When you say ‘once borrowing cap reached, then set up a new company to either act in its own right or as trustee for a different trust’, won’t lenders for the 2nd trust see that the director/s of the first trust (director/s would be the same for the trusts) have given personal guarantees for the assets held in the first trust? I thought guarantees are essentially looked at as personal borrowings for serviceability?
A trust is not a separate legal entity, but a company is. So the debts of Company A are not debts of Company B. If company C borrows money the debts of Company A and B are not taken into account. But most lenders will look at the borrowings of the personal guarantors, as the company has no income. Guarantees given by the directors will be considered the same as loans for serviceability for most lenders, but not all. Some lenders will disregard personal guaratees as long as the borrower is paying their own way and the guarantor is not needed to fund it.
Lastly, if you have maxed out your personal burrowing capacity by purchasing real estate, will establishing a trust and having a company act as trustee still allow you to burrow more since it’s the company’s debt and you’re not personally liable?
Since the lender is basically base the serviceability on the guarantor’s income, if they have already reached borrowing capacity then they or a related company will not be able to borrow any further – its too late at that point.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
see
https://www.propertyinvesting.com/topic/5076532-best-owner-structure-to-minimize-land-tax-2/
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
You need to seek credit advice from a broker. Was the reason that you failed serviceability or that you were too rent reliant?
As a guide you could generally borrow 7x your annual pretax income – very rough.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
this will all depend on where the land will be as land tax is governed by state legislation. Something you should seek legal advice on.
A bare trust won’t really help though.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Is it possible to have an offset account linked to a fixed interest only investment loan?
Yes a handful of lenders offer fixed with offset. Heritage and Adelaide are 2
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
A LOC is generally at call and the limit can be cancelled.
A term loan is generally for 30 years. There are differences in serviceability assessements too.
One could work as well as the other, but one could also be better than the other. This is something you need credit advice on as it will different from lender to lender. I haven’t written a LOC loan as a broker in over 10 years, except for the $10k minimum with AMP
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
The rates on LOCs are generally very high and the term is generally at call.
You can use a term loan just like a LOC.
An alternative might be to use the LOC and then convert it to a term loan once fully used.
Get some tax advice
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
With debt recycling you pay down debt and then reborrow again, usually using the same loan.
Yes you can only claim interest on money borrowed to acquire, or improve, an income producing asset.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
